The Government gazetted on January 15, 2021 subsidiary legislation to implement the new profits tax concessions for insurance-related businesses effective from March 19, 2021. Enacted in July 2020, the Inland Revenue (Amendment) (Profits Tax Concessions for Insurance-related Businesses) Ordinance 2020 reduces the profits tax rate by 50% (i.e. 8.25%) for all general reinsurance business of direct insurers (hereafter called “specified insurer” in line with the term used in the Amendment), selected general insurance business of direct insurers and selected insurance brokerage business.

Specified insurers

A specified insurer means any of the following persons carrying on in or from Hong Kong a class of insurance business specified in Schedule 1 to the Insurance Ordinance:

• a company authorised by the Insurance Authority to carry on any classes of insurance business;
• Lloyds (i.e. the society of underwriters known in the UK as Lloyd’s); and
• an approved association of underwriters.

General reinsurance business

General reinsurance business means a business of providing reinsurance of liabilities under a contract of insurance effected by an insurer or Lloyd’s in the course of:

• carrying on a general insurance business; or
• carrying on a business similar to a general insurance business under the law of a place outside Hong Kong;

Specifically, the reduced tax rate will apply to the assessable profits of specified insurers in respect of their general insurance business, but the following five types of specified risks and liabilities are excluded from the concessionary regime:

• health risk;
• mortgage guarantee risk;
• motor vehicle damage risk;
• employees compensation liability; and
• owners' corporation third party liability

Selected insurance brokerage business

The reduced tax rate will apply to the assessable profits of a licensed insurance broker company derived from the business of placing:

• all general and long term reinsurance contracts with professional reinsurers;
• all general reinsurance contracts with specified insurers; and
• selected general insurance contracts with specified insurers, i.e. excluding contracts involving the five types of excluded risk or liability.

Like other existing tax concessions, the above reduce tax rate is subject to the prescribed threshold requirements as prescribed by the Commissioner, such as (a) the number of full time employees in Hong Kong who carry out the activity and have the qualifications necessary for doing so; and (b) the amount of operating expenditure incurred in Hong Kong for the activity:

For more information, please contact Ms. Amie Cheung at amie.cheung@lccpa.com.hk